Small Cap Value Report (Thu 27 Jun 2019) - STAF, TND

Thursday, Jun 27 2019 by

Hi, it's Paul here!

I'm thinking of ditching the 7-8am quick view format, because;

1) Very few subscribers here seem to read the SCVRs early (usually only about 15 reads by 9 am),

2) It's very stressful for me, starting the day running flat-out, against a short (self-imposed) deadline, and drains a lot of my energy, for little benefit to everyone.

3) Mr Contrarian posts an excellent initial view every day which usually covers the main points (so I'm pointlessly duplicating his work, arguably)

Therefore, providing there are no serious objections, I'm minded to go back to the old format, of me having less time pressure, and taking my time to rummage through, and report on, the most interesting RNSs of the day, by mid morning towards lunchtime. Then later, more in-depth articles, if it takes my fancy, and needs more work (typically 2-4 hours per company results statements).

I think that's what most subsribers want anyway, but there's no harm in experimenting with different formats & ideas. Then settling with whatever format we all like the best.

Staffline (LON:STAF)

Share price: 116p (down c.23%, at 10:43 - volatile, so likely to change)
No. shares: 27.9m existing + new shares: 34m placing + 7m open offer (if fully taken up) = 68.9m
Market cap: (assuming placing & open offer fully taken up)  £79.9m

This is a financial distressed staffing agency. It made too many debt-fuelled acquisitions (7 in 2018 alone), and then ran into serious difficulties once it emerged that it had underpaid staff in breach of minimum wage regulations. The shares were suspended for a while, but (bizarrely) resumed trading whilst the current fundraising was progressed.

There are 2 announcements today (so far);

Final Results - for the year ended 31 Dec 2018. The deadline for publication is 6 months, so Staffline has only narrowly avoided the shares being suspended again. The RNS today is just 6 pages long, as it's a summary only. The full annual report is here on Staffline's website. I'll plough my way through that later.

On an initial skim, this net debt bridge is very interesting, as it clearly shows where management went wrong - taking on too much debt to fund a reckless acquisition spree;


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Staffline Group plc is a holding company, which is engaged in the provision of recruitment and outsourced human resource services to industry and services in the welfare to work arena and skills training. The Company has two segments: Staffing Services, which includes the provision of temporary staff to customers, and PeoplePlus, which includes the provision of welfare to work and other training services. Its Staffing Services focuses on providing complete labor solutions in agriculture, food processing, manufacturing, e-retail, driving and the logistics sectors. Its recruitment business operates from well over 300 locations in the United Kingdom, Eire and Poland. The Staffing brands include Staffline OnSite, based on clients' premises providing both blue and white collar, out-sourced, temporary workforces. Its Employability includes work program, prime contractor in over nine regions and sub-contracts in approximately five regions in England. more »

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Tandem Group plc is a holding company. The Company is engaged in the design, development, sourcing and distribution of sports, leisure and mobility equipment. The Company operates in two segments: Bicycles, bicycle accessories and mobility, and Sports, leisure and toys. The Company's subsidiaries include Tandem Group Cycles Limited, which is engaged in the design, development, sourcing and distribution of sports, leisure and toy products; MV Sports & Leisure Limited, which is engaged in the design, development, sourcing and distribution of bicycles and accessories; Pro Rider Limited, which is engaged in the design, development, sourcing and distribution of mobility and leisure products, and E.S.C. (Europe Limited), which is engaged in the design, development, sourcing and distribution of leisure products. more »

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  Is LON:STAF fundamentally strong or weak? Find out More »

76 Comments on this Article show/hide all

tomps3 27th Jun 57 of 76

We've just published Polar Capital Technology Trust (LON:PCT) presentation at Mello Trusts & Funds

An interesting presentation by Ben Rogoff, CIO

More an overview of the tech space, and what Ben/the fund thinks are the important considerations for those investing in tech. Overall, an interesting presentation. Asides which stuck out for me, the comments of the lack of depth (ie. liquidity) in the UK stocks v US stocks, which makes US more attractive. And a brief comment about when to sell - although not much detail given.

Ben's an engaging speaker, so anyone investing in tech will enjoy.

Separately, tomorrow, Friday, we'll publish an interview with Keith Ashworth-Lord, CIO of The Buffettology Fund. The Buffettology Fund has returned around 200% since 2014! Funds have been beating a path to his door over the last 6 months, now £1bn under management. I learn from Keith what he does that leads to such extraordinary returns.

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Richard Vasey 27th Jun 58 of 76

In reply to post #487461

Thanks rhomboid1 for this helpful further information you have gleaned. Just a pity that the company (£AIEA) profit warning didn't have more detail attached to it.

Paul has shown previous interest in this share and it would be interesting to get his views in the light of the further information that you have provided.

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bestace 27th Jun 59 of 76

In reply to post #487441

Manolete Partners (LON:MANO) is a different kettle of fish to Burford Capital (LON:BUR) and Litigation Capital Management (LON:LIT) so I don't think the P/NAVs or P/Es can be directly compared.

Manolete's niche (UK insolvency) has rules which allows them to be the principal in most of their legal cases, not just the funder. That means they control the timing of any settlements and their cases are much shorter in duration meaning they can recycle capital into new cases more frequently.

I'd suggest that merits a higher price to book or PE than the other litigation funders, I just don't know how much higher.

I don't think any of the listed litigation funders are seeing great cash flow, including Litigation Capital Management (LON:LIT) who have negative operating cash flow and poor conversion despite not fair valuing their investments. However I wouldn't necessarily see this as a problem - cash flow will always look poor for as long as these companies (and the market) are growing and recycling their profits into new investments. 

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davidjhill 27th Jun 60 of 76

In reply to post #487516

on Manolete Partners (LON:MANO) check out Research Tree on Litigation Capital Management (LON:LIT) and Manolete Partners (LON:MANO). I think it is Arden that does a direct comparison on P/NAV, though I think they believe Manolete Partners (LON:MANO) is on 6.5* P/NAV which is even higher than my fag packet calc ! I just don't get that it is worth 40* earnings that aren't even real cash (just unrealised P&L that could change) or 70* cash earned in the period, versus the others. Doing the legal in-house also has its drawbacks, not least a lack of flexibility in any event of a lack of cases.

I think they are a good company and may eventually grow into the valuation but any hiccup will slaughter the price, there is no margin for error. I have no desire to buy here at all. Would watch closely at 350p and pick up at 330p or below and I think my chance of getting that price is circa 50% so happy to wait.

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bobsandy12 27th Jun 61 of 76

Hi Paul, Your post says it all about you so thanks for the honesty
I support the idea that you do what you do best when you feel you do it best.....we are lucky to benefit


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jonniehem 27th Jun 62 of 76


Work as best suits you.


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HornBlower 27th Jun 63 of 76

In reply to post #487486

Re Sosander (LON:SOS)

Francis that is very helpful, thanks. 

I think we should be looking at £1.4-1.5m for Q1 revenues as seasonally much stronger than Q4 which was £1.0m plus strong underlying growth. I think that is what is needed to be in line with market expectations of FY20 revenue of £9.5m. We shall see

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mbdx7em21 27th Jun 64 of 76


"Divide that by the (estimated) new share count of 79.9m, and that gives my estimate for 2019 EPS of 21.8p"

should that not be a new share count of 68.9m?

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mbdx7em21 27th Jun 65 of 76

In reply to post #487566

Anyone else want to comment in the meantime?

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Paul Scott 27th Jun 66 of 76


Thanks for all your thoughts on the format. It seems overwhelming that subscribers value my more in-depth stuff, more than me doing an early, quick comments section. Happy days!

Just to clarify, when I say that I'll write about what interests me most, then what drives that selection process mainly is;

  • Biggest % movers for the day
  • Profit warnings
  • Above expectations announcements
  • Companies that look good value & seem to have positive risk:reward - ultimately I want to try to flag up interesting shares that readers might be able to make some money from, after having done their own research. Obviously that sometimes works, and sometimes doesn't.
  • High StockRank companies
  • Good quality companies with decent management (in my view)
  • Companies where I see some kind of hidden value - e.g. Avesco a couple of years ago, which made a ton of money for lots of readers when it was bought out at a large premium
  • Both Graham & I do look at the reader requests, and we often (maybe even usually) do write about companies which lots of readers have requested. But it's not a full on-demand service I'm afraid - Stockopedia would have to put a zero on the end of my fees, to even vaguely tempt me to work on that basis! But we do listen, and try to respond to most reader requests, if they're interesting companies worth looking into.
  • The reader contributions in the comments section here are awesome - I love it when subscribers post a summary of results or trading updates, and give your views, on companies that you hold.

So, in practice, the shares that I write about are usually the interesting companies that readers want me to write about anyway.

Anyway, I'm taking a break now, and will write some more once it's cooler this evening. I want to look at Airea (LON:AIEA) (as it interests me & lots of readers), and also we should have some news on STAF later, I hope. I've applied to buy some shares in the placing, so we'll see what happens with that.

Best wishes, Paul.

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Paul Scott 27th Jun 67 of 76

In reply to post #487566


"Divide that by the (estimated) new share count of 79.9m, and that gives my estimate for 2019 EPS of 21.8p"

should that not be a new share count of 68.9m?

Arrgghhh! You're right, sorry I picked up the wrong figure in my calculations.

Profuse apologies, I'll correct the report now.

Thanks for flagging.

Regards, Paul.

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simoan 27th Jun 68 of 76

In reply to post #487501

Hi Tamzin,

Although I regularly give you a thumbs up I'm not sure I've ever thanked you for the content on your website and for regularly alerting us to useful content here. So Thanks! I've been a bit light at work the past week due to the summer lull and have watched a few of the video presentations.

With relation to the Polar Capital Technology Trust (LON:PCT) presentation, I've never looked at these kinds of technology trusts before. Ben certainly seems to eat his own cooking in terms of his evangelism for, and personal use of technology. However, having just looked at the trust on the AIC website, I was staggered to see it held shares in 113 different companies and was heavily invested in the usual boring FAANG stocks. Even I can do that! What is the point in holding stocks 61-113? Surely 60 stocks is more than enough diversification for anyone to cover the 8 areas of interest he describes? Despite his very positive presentation this just smacks of a complete lack of conviction which I would find quite worrying if I was a holder. It's a shame someone didn't ask him this question in the Q&A...

This is in stark contrast to the high conviction trusts and OEICs run by Terry Smith, Nick Train and Keith Ashworth-Lord. I look forward to seeing your interview with the latter soon.

Thanks again, Si 

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LeoInvestorUK 27th Jun 69 of 76

I really think any holders or prospective holders of Staffline (LON:STAF) should take the time to read the section from the auditors in today's annual report.

Blog: LeoInvestorUK
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Lennart 27th Jun 70 of 76

In reply to post #487426

I concur with Martin. A very early report is not important to me. The old format is fine.


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Paul Scott 27th Jun 71 of 76

In reply to post #487601

Hi Leo,

I really think any holders or prospective holders of Staffline (LON:STAF) should take the time to read the section from the auditors in today's annual report.

Thanks for the prompt, this was on my to do list actually.

The main financial stuff about going concern, pages 62-63 are consistent with the RNS today about the proposed fundraising. So no surprises there.

However, the additional detail on the next few pages is rather concerning - as it makes clear that certain individuals (who?) appear to have been dishonest, in not properly disclosing customer disputes, etc, to the auditors.

That raises the question over whether management are trustworthy - it seems they may not be.

Also, I don't think this fundraising is enough. The balance sheet as at 31 Dec 2018 shows negative NTAV of £-68.2m. If the fundraising adds say £38m net of fees, then the balance sheet would still have negative NTAV of £-30.2m even after this fundraising completes.

Therefore, by my own rules (of not investing in companies with negative NTAV), I really shouldn't have put in an order for the placing today.

Regards, Paul.

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monsnaggl 27th Jun 72 of 76

Hi Paul - my first post on here...
I'm thinking of ditching the 7-8am quick view format, because;

--- Im a night owl - as I believe are you from what I have gleaned over the years - so can only bow to your bravery in even starting such a thing.

1) Very few subscribers here seem to read the SCVRs early (usually only about 15 reads by 9 am),

--- Im not one of them

2) It's very stressful for me, starting the day running flat-out, against a short (self-imposed) deadline, and drains a lot of my energy, for little benefit to everyone.

--- Totally understand.

On another note I would like to thank you and Graham for absolutely brilliant analysis on a daily basis. I have not missed one of your reports in over 3 years - and given all the information floating around in cyberspace these days that says something to the quality of what you guys produce IMHO.

Also, the debate over whether to charge for SCVR was baffling ... how anyone calling themselves a serious investor can complain about paying for access to SCVR (coupled with all other stocko benefits) is beyond me. If a couple of hundred quid is beyond your means then arguably you should nit be investing in small caps... (discuss).

Anyway... keep up the good work... I'm sure there are more silent appreciators like me!


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Steves cups 27th Jun 73 of 76

Hi all
Don't know if anyone noticed but Fairfx £ffx changed it's name today to Equals Group plc FairFX (LON:EQLS)

Surely a) they could have given notice of the change - I only found out because it fell out of my LSE watchlist
And b) who chose the name?????

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EJL 27th Jun 74 of 76

Paul-ditch the 7-8 AM quick view format-get some sleep.

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abtan 1st Jul 75 of 76

In reply to post #487316

Thanks to all who left comments on Manolete Partners (LON:MANO)

I've finally had time to sit down and go through the results from last week and I'm quite pleased with them. My rationale for this is as follows:

  • Manolete Partners (LON:MANO) currently have £18m invested in cases + £9m cash in the bank, with no debt.
  • Average duration of cases is c12 months.
  • Historically the lowest multiple return they have received has been x2.5 (it was 3.6 in H1 2018/19), so assuming the entire £27m available is invested, and the returns gained are at this lower x2.5 multiple, implies a minimum gross return of around £40m.
  • (NB: I imagine some of this £40m has actually already been recognised as an unrealised gain, so implied remaining return is probably lower, perhaps closer to £35m)
  • Administration costs are minimal. £3m in 2018/19

If Manolete Partners (LON:MANO) can achieve anywhere near those figures then the valuation, at a current market cap of £200m, looks incredibly cheap.

Unless I'm missing something very obvious?

Andrea, with regards to your point on 2018/19 gains looking down on previous years, I can see the table you are referring to now, and the 2019 returns do indeed look lower as they only include completed cases. 

Why they did this, especially when 2017/18 also has uncompleted cases which have been included, I'm not really sure as it confuses things and makes comparison difficult. Hopefully the interim results will provide a more accurate comparative table.

Thanks again to all who provided their thoughts on Manolete Partners (LON:MANO) - very much appreciated.


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abtan 1st Jul 76 of 76

For reference, here is the table that I found most interesting for Manolete Partners (LON:MANO) :

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 Are LON:STAF's fundamentals sound as an investment? Find out More »

About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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